1.1.2.-Forms-of-business-ownership-1788345242

1.

Important !
This class explains in a general way the
laws that apply to businesses. This is not a
legal opinion or legal advice or professional
opinion and advice. To find out the specific
rules for your situation, please consult
a lawyer or notary or a Professional.
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2.

Forms of Business Ownership
These are 3 main forms of business
organization:
◦ Sole Proprietorship
◦ Partnership
◦ Corporation

3.

Sole Proprietorship
A business owned by a single individual.
The law does not distinguish between the
business and the owner.
All that is legally necessary is that the business
be registered and the proper licenses obtained.
No legal separation between business and
owner.

4.

Sole Proprietorship
Advantages
Quick, easy and inexpensive to establish
Requires only registration and licenses
All profits to owner and included with
personal income for tax purposes
Owner makes all decisions

5.

Sole Proprietorship
Disadvantages
Unlimited liability
Harder to raise capital than partnership or
corporation
Limited to owner’s knowledge
Lack of continuity
Profits taxed at higher personal rate
Limited options for employee compensation

6.

Partnership
An unincorporated business owned by more than one
individual.
The law does not distinguish between the business and the
owners.
Profits divided according to each partners share of the
business
Each partner includes share of income in personal taxable
income.
In a general partnership, each partner is jointly liable for the
debts of the partnership. In a limited partnership, a person can
contribute to the business without being involved in its
operations. A limited liability partnership is usually only
available to a group of professionals, such as lawyers,
accountants or doctors.

7.

Partnership
When establishing a partnership, you should
have a partnership agreement in place. This is
important because it establishes the terms of
the partnership and can help you avoid
disputes later on. Hiring a lawyer or other
legal professional to help you draw up a
partnership agreement will save you time and
protect your interests.
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8.

Partnership
Advantages
Quick, easy and inexpensive to establish
Combines talents & resources of >= 2 people
Limited regulations
More capital resources
Partners may deduct business losses (share)
from other personal income for tax purposes

9.

Partnership
Disadvantages
Partners assume unlimited liability for
business debts and obligations
Possible disagreements
Sometimes difficult to make decisions (agree)
Partners liable for each other

10.

Corporation
A business which is a separate legal entity,
established by corporate charter
The law views the business as a separate
entity from the owner(s).
Like a “person” the corporation can own
land/property, enter agreements and hold
contracts.
It can be sued, sue others or incur debts.
Ownership represented by shares held.

11.

Corporation
Profits of the corporation are distributed to
the shareholders by way of "dividends".
The more shares one owns, the more
dividends they will receive.
Corporations can issue one share or millions
of shares.
Often managed by Board of Directors who
appoints executives including President.
Corporations can be public(traded) or private

12.

Corporation
Advantages
Unlimited life, so business continues
uninterrupted if owner(s) die
Limited liability of shareholders (However,
directors and officers can be liable in certain
circumstances.)
Ownership easily transferred
Contract for employee benefits plans
Possible lower taxation rate (profits &
dividends)

13.

Corporation
Disadvantages
Costly to set up due to government fees,
name searches, legal fees
Requires annual maintenance from
accountant and lawyer for reports and
meetings/filings
Owners personal assets can be seized if
personal guarantees (collateral) have been
signed

14.

Forms of Business Ownership
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